Ottawa-The demand for biofuels is growing across North America in response to increased gasoline blend rates and higher oilseed crush capacity but changes to U.S. policies on renewable fuels and trade policies could in time reduce demand for Canadian fuels, says Farm Credit Canada.

“For now, however, the future looks bright,” FCC said. Ethanol, biodiesel and renewable diesel blended with fossil fuels can help improve fuel quality and reduce greenhouse gas emissions.

“In the last five years multiple major corporations have announced plans to invest and expand biofuel production capacity. Even if some of these plans do not move through to completion, North American biofuel production is set to grow in the upcoming years. That’s bullish for Canadian oilseed producers.”

Ethanol is the largest biofuel produced in the world. Canadian plants turn out nearly 150 million litres of it per month and “have increased their output by squeezing additional drops of ethanol from each tonne of grain.”

Renewable diesel can generate higher carbon credit prices in North America compared to biodiesel and as renewable diesel’s chemistry is similar to traditional diesel, their use can be easily swapped.

Earlier this year, new renewable diesel plants came online and immediately doubled Canada’s monthly production of other renewable fuels. The amount of ethanol blended into gasoline reached 10 per cent of the fuel in April. While federal and provincial blend mandates contribute to this, ethanol is also a relatively cheap fuel enhancer as it helps to raise the octane in finished gasoline.

Going forward, the percentage of ethanol in gasoline will continue to increase to meet compliance with provincial and federal mandates. “It’s unclear, however, if the rise in ethanol consumption can be sustained, especially considering the electrification of the automotive sector. With 100 per cent of new light duty vehicles sales set to be zero emission by 2035, eventually the total demand for motor gasoline will start to shrink and, even with higher blends of ethanol, there could be lower total demand for the biofuel.”

The demand for biodiesel and renewable diesel blended into diesel are heavily influenced by seasonality. Biodiesel has strict limitations on its use in winter due to cold weather viscosity issues. Renewable diesel does not suffer from the same limitations and can be used throughout the year. “Looking ahead, more renewable diesel production in North America will allow for more consistent year-round blending which should increase the total biofuel percentage blended in diesel.”

In Canada, increased renewable diesel production is being supplied primarily by vegetable oils so far, up 51 per cent through the first four months of the year. Fats, tallows, and greases are often preferred as a feedstock/input due to their lower carbon score, but supplies are constrained in Canada. Rather than importing these products, renewable diesel plants are using domestically crushed canola or soybean oil.

In the U.S., current biofuel tax structures and new credits coming into effect in 2025 are driving demand for inputs, including Canadian canola oil. Nearly 1.4 million metric tonnes of canola oil were exported to the U.S. in just the first four months of 2024 putting oy on track for a record annual tally. “The new policy will shift to a producer tax credit, meaning only U.S. production of biodiesel or renewable diesel will be eligible to collect it, potentially harming Canadian biofuel exports. For now, however, canola oil producers are taking advantage of the increased demand to fill U.S. capacity and, as a result, we can expect the majority of oil to flow south.”

This news item prepared for National Newswatch